Deck 8: Currency Futures and Options Markets

Question 1

Suppose you are holding a long position in a euro futures contract that matures in 76 days.The agreed?upon price is $1.15 for 125,000 euro.At the close of trading today,the futures price has risen to $1.155.Under marking to market,you now

A)hold a futures contract that has risen in value by $1,250
B)hold a futures contract that has fallen in value by $625
C)will receive $625 and a new futures contract priced at $1.155
D)must pay over $1,250 to the seller of the futures contract

Answer 1

C

Question 2

Major advantages of futures contracts include the

A)large number of currencies traded
B)extensive delivery dates available
C)freedom to liquidate the contract at any time before its maturity
D)unlimited contract sizes

Answer 2

C

Question 3

The value of a European option always

A)exceeds its intrinsic value
B)rises with the time to maturity
C)rises with the interest rate
D)rises with the volatility of the exchange rate

Answer 3

D

Question 4

Suppose the current spot rate for the Australian dollar is U.S.$0.8321.The intrinsic value of an A$50,000 call option with an exercise price of U.S.$0.8195 is

A)$0
B)$630
C)$740
D)$2,340

Question 5

You can speculate on a pound depreciation by

A)selling pound futures and buying a pound call option
B)buying pound futures and a pound put option
C)selling pound futures and a pound put option
D)none of the above

Question 6

Suppose that the interbank forward bid for March 20 on Swiss francs is $0.7827 at the same time that the price of IMM Swiss franc futures for delivery on March 20 is $0.7795.How much of an arbitrage profit could a dealer earn per March Swiss franc futures contract of SFr 125,000?

A)$400
B)$68
C)$215
D)$58

Question 7

Suppose the current spot rate for the pound is $01.7427.A put option with an exercise price of $01.7550 is said to be

A)in?the?money
B)out?of?the?money
C)at?the?money
D)past breakeven

Question 8

What is the name for the value of the option that is the amount by which the option is in-the-money?

A)intrinsic value
B)economic value
C)market price
D)the currency spread

Question 9

Suppose the current spot rate for the euro is $1.3427.A call option with an exercise price of $1.3550 is said to be

A)in?the?money
B)out?of?the?money
C)at?the?money
D)past breakeven

Question 10

Which of the following has provided a major inducement for speculators to participate in the futures market?

A)low margin requirements
B)low bid?ask spreads
C)high volume compared to the forward market
D)all of the above

Question 11

Suppose it is January 1990 and the current spot rate for the DM is $0.5925.The call premium on a call option with an exercise price of $0.5675 is $0.0373.What is the intrinsic value of one DM 62,500 call option?

A)$2,331.25
B)$1,562.50
C)$950.00
D)$768.75

Question 12

The time value of a European option

A)is always positive for an out?of?the?money option
B)is always positive for an in?the?money option
C)is always positive for an at?the?money option
D)decreases with the time that remains until the option expires

Question 13

shows how much money must be in the futures market account balance when the contract is first entered into.It is the

A)initial performance bond
B)performance bond call
C)maintenance performance bond
D)account balance

Question 14

The basic differences)between forward and futures contracts is that

A)forward contracts are individually tailored while futures contracts are standardized
B)forward contracts are negotiated with banks whereas futures contracts are bought and sold on an organized exchange
C)forward contracts have no daily limits on price fluctuations whereas futures contracts have a daily limit on price fluctuations
D)all of the above

Question 15

is the name of the market in the U.S.where trade takes place in currency futures? The

A)United Currency Options Market
B)Philadelphia Stock Exchange
C)New York Futures Market
D)Chicago Mercantile Exchange

Question 16

Options traded in the interbank market are known as

A)listed options
B)exchange?traded options
C)over?the?counter options
D)long-term options

Question 17

the currency futures market,what is the term that describes the number of contracts in a currency outstanding at any one time?

A)open interest
B)closed interest
C)long position
D)in-the-money

Question 18

major disadvantage of forward and futures contracts relative to options is that the forwards and futures contracts

A)cannot protect the holder against the risk of adverse movements in exchange rates
B)are more expensive
C)are available only for relatively short maturities
D)eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates

Question 19

Suppose it is May 1998 and the current spot rate for the DM is $0.5925.The call premium on a call option with an exercise price of $0.5675 is $0.0373.What is the time value of one DM 62,500 call option?

A)$2,331.25
B)$1,562.50
C)$950.00
D)$768.75

Question 20

Which one of the following is credited with an important role on the Chicago Mercantile Exchange because,in the process of realizing profit opportunities,they keep futures rates in line with bank forward rates?

A)speculators
B)hedgers
C)arbitrageurs
D)currency traders

Question 21

You can speculate on an appreciation of the Japanese yen by

A)selling a yen put option and buying a yen call option
B)selling a yen put option and selling a yen call option
C)buying a yen put option and selling a yen call option
D)buying a yen put option and buying a yen call option

Question 22

Fluor Corporation has just made a French euro bid on a major project located in France.It won't find out for 60 days whether it has won the contract.There will be a 10% signing bonus payable to the winner in euros.The best way to protect against currency risk on its bid is for Fluor to

A)buy a euro futures contract
B)sell a euro call option
C)sell a euro futures contract
D)buy a euro put option

Question 23

A rise in the domestic interest rate will

A)raise the value of foreign?currency call options and reduce the value of foreign?currency put options
B)raise the value of foreign?currency put options and reduce the value of foreign?currency call options
C)raise the value of both foreign?currency put and call options
D)reduce the value of both foreign?currency put and call options

Question 24

A rise in the foreign interest rate will

A)raise the value of foreign?currency call options and lower the value of foreign?currency put options
B)raise the value of foreign?currency put options and lower the value of foreign?currency call options
C)raise the value of both foreign?currency put and call options
D)reduce the value of both foreign?currency put and call options